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Exel's Principles for  Ontario Electricity Industry  Restructuring

Our principals have developed an overview of a desired end-state for Ontario’s electricity industry which will provide sufficient levels of competitively priced energy to all electricity consumers in the province. The achievement of this end-state requires substantial consultation, leading to a number of extensive changes in the way energy is produced and sold in the province, the manner in which regulation oversees the market place and the way consumers will use electricity to meet their energy needs. Exel Energy has set out key changes that would be required by governments, regulators, consumers, energy suppliers and retailers as well as transmitters and distributors, to reach the desired end-state. These recommendations may seem formidable but indeed are critical to ensuring that Ontario’s electricity requirement’s for the next 10-20 years are developed in a way that will result in significant increases in economic development for the province. 

          Exel's overview of a framework  for the desired end state is as follows:

  • Power is generated by multiple participants on a competitive basis, from different sources including nuclear, hydraulic, fossil fuels, wind power, solar and other green power sources. Some generators may be publicly owned, but most will be commercial, privately- owned enterprises.
  • Electricity supply is produced and sold on a contractual basis by suppliers to five (or fewer) regional electricity distributors (RDC’s) and other large wholesale market participants. The five RDC’s contract for the Standard Supply needs of their customers on a long-term basis and supplement supply requirements for peaking by purchasing electricity on a spot basis through an electricity exchange.
  • Power is transmitted to RDC’s and other large users via Hydro One and other local transmitters. Rates and other terms and conditions of service continue to be set by the Ontario Energy Board (OEB). Hydro One has a commercial mandate and for the most part, provides transmission services only. This would enable a combination of functions with the independent system operator (ISO) and the achievement of considerable efficiencies overall. Transmitters’ licenses contain requirements to expand inter-tie capacity with adjacent market areas.
  • The five RDC’s are critical to the successful development of the producing segment. They are structured in various ways depending on the evolution of the consolidation process and are owned by a variety of stakeholders including municipalities, Hydro One, and private capital. They are structured as partnerships, trusts or corporations. Rates and other terms and conditions of service will be set by the OEB using long term, performance-based measures. Income taxes or payments-in-lieu of taxes (PILs) will be reflected in rates, irrespective of whether they are paid at the corporate level or at the level of the beneficial owners.
  • Direct marketers and other aggregators also serve customers by contracting for supply and transportation to the customer through Hydro One’s transmission and the RDC’s distribution lines. Customers are free to buy from an aggregator and the RDC’s supply contracts provide for supply reductions if customers move to other purchase options.
  • Each RDC has an approved rate for Standard Supply, which is based on its supply contracts and estimates of spot supply costs. Any variation between the approved rate and the actual cost incurred is deferred and passed on to customers through quarterly rate adjustments, subject to prudency tests. As a result, customers experience little short-term price volatility on their electricity bills.
  • Consumers supply costs transition from the current to the market price through planned increments (or decrements) determined by the OEB and the Government.
  • Distributors have a major responsibility for demand- side management and have invested in the required technology, such as interval meters to achieve demand management goals. Time- of- use rates are in place and consumers see substantial value for managing their demand. Distributors and others are rewarded or penalized for demand-side management achievements.
  • Hydro One’s ownership of its distribution assets would be through an ownership interest in one or more of the five regional RDC’s. It would remain a distributor of last resort in some far north communities. Rural rate subsidies remain in place, and are administered by the OEB.



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Exel's Principles for  Ontario Electricity Industry  Restructuring

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